What is a Financial Advisor?
A Financial Advisor is a finance professional who provides consulting and advice about an individual’s or entity’s finances. Financial advisors can help individuals and companies reach their financial goals sooner by providing their clients with strategies and ways to create more wealth, reduce costs, or eliminate debts.
Financial Advisor Role
A financial advisor can help individuals or companies meet their financial objectives, as follows.
In the case of an individual, a financial advisor can provide insight into how they can save more and build their wealth. This is often done by constructing a portfolio of investments that are well suited to the client’s risk attitude. Some clients are more willing to take on risk if the prospect of a potential greater reward is more compelling to them than the prospect of potentially losing money.
Conversely, there are also clients who are more risk-averse, and that would like a lower-risk portfolio, even if it means potentially lower returns.
Determining an individual’s risk attitude may be difficult since an individual’s risk attitude can depend on a great number of factors. Thus, a financial advisor may ask about things like the individual’s age, income, marital status, indebtedness, or savings in order to gather a solid understanding of their client.
In the case of companies, financial advisors can help provide a second, neutral perspective on corporate development projects. For instance, if a company is considering expanding its operations by building a new factory, financial advisors can help assess the profitability of the project independently.
Once the advisor’s assessment is concluded, they can present their findings to the company’s management with the goal that their analysis will provide the company’s leadership with a valuable second opinion.
Financial Advisor Salaries
In Canada, compensation ranges are very wide for financial advisors, with base salaries starting at low at $30,000 and going up to over $100,000.
Most financial advisors are also compensated with bonuses paid out if certain performance objectives are reached. Some advisors are also compensated on a commission basis if they invest their client’s money in certain managed funds. As with many other finance-related professions, relevant experience is rewarded. This means that managers who have been practicing for many years are typically the ones who end up at the higher end of the income spectrum.
Obtaining designations such as the CFA charter or an MBA can help expedite an individual’s progress up the career ladder. Many financial firms also require a certain minimum GPA cut-off for new graduates, meaning that excellent grades are a must.
The Future of Financial Advising
As technology continues to progress, there’s been an increasing number of “robo-advisors” that are being used by companies. Robo-advisors are automated programs that interpret user information using advanced algorithms and create investment portfolios geared toward the client’s specific financial goals.
Such programs automate the process of collecting and interpreting information, meaning that they can complete the job of a financial advisor in a fraction of the time and at a fraction of the cost. Robo-advisors can constitute a real threat to financial advisors if technology continues to progress and algorithms become increasingly accurate.
Nonetheless, there is a great deal of concern over how trustworthy robo-advisors can be. Many individuals would still like to know that their money is being managed by a real person that they can talk to and communicate with, rather than by a computer. However, in a world where financial advisors and investment managers seldom beat market indices, it is becoming less of a concern.
CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.
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